Larry Reynolds, who admitted in federal court Thursday to laundering money for Minnesota businessman Tom Petters in what authorities say is a $ 3 billion investment fraud scheme, is negotiating with prosecutors to be freed until he is sentenced.

Reynolds, 67, of Las Vegas, has been in federal custody since his arrest in California Oct. 3. He and Petters had both been charged in a criminal complaint with mail and wire fraud, money laundering and obstruction of justice.

But Reynolds turned on Petters and entered a guilty plea Thursday in U.S. District Court in St. Paul to a single charge of money-laundering conspiracy. He faces up to 20 years in prison.

Reynolds said that beginning in 2002, he set up a bank account at his Los Angeles firm, Nationwide International Resources, and used it to help fool Petters' investors into thinking that their money would be used to buy high-end electronics merchandise for sale through big box retailers.

About $12 billion flowed through the account, Reynolds said. Numerous wire transactions passed through the account each month, generally ranging from $2 million to $25 million. The money was not used to buy electronics, however.

After the money came in, Reynolds said, he forwarded it to Petters, less a commission. At first, he said, the commission amounted to five-hundredths of a percent of the amount transferred, but that was eventually reduced to about a hundredth of a percent. Reynolds, dressed in a black T-shirt and dark slacks, said he collected about $6 million this way.

The federal sentencing guidelines, which are advisory, call for 210 to 240 months in prison, a fine of between $20,000 and $200,000, and up to three years of supervised release.

Reynolds reserved the right to argue that the guidelines are too severe in his case because they are based on the amount of money lost or made in the overall scheme. Authorities say the scheme bilked more than $3 billion from investors, although losses have not been determined. Regardless, the government contends the amount will exceed the highest threshold in the sentencing guidelines, which is $400 million.

As part of the plea, Reynolds agreed to be held jointly and severally liable, along with other defendants, for restitution. He has agreed to help authorities locate any assets that might exist. But the agreement does not explicitly require his cooperation with respect to other individuals.

Of five defendants charged in the case, only Petters has proclaimed his innocence; the others pleaded guilty and await sentencing. Two other people -- Petters' accountant Jim Wehmhoff and business associate Frank Vennes Jr. -- have been identified in court documents as participants in the scheme but have not been publicly charged.

Reynolds' attorney, Fred Bruno, said his client wants out of jail and is trying to work out conditions for his release. Bruno said it might take a couple of days to arrange but he was optimistic.

But federal prosecutors remain opposed to releasing Petters. He was scheduled to appear Thursday in an effort to be released on bond, but that hearing was postponed to Oct. 31.